(Responsibility accounting reports) Gold Finch Inc. manufactures small industrial tools and has an annual sales volume of approximately $3.5 million. Sales growth has been steady during the year and there is no evidence of cyclical demand. The company’s market has expanded only in response to product innovation; therefore, R&D is very important to the company.

Cynthia Tatum, controller, has designed and implemented a new budget system. An annual budget has been prepared and divided into 12 equal segments to use for monthly performance evaluations. The vice president of operations was upset upon receiving the following responsibility report for the Machining Department for October 1997:

a. Identify the weaknesses in the responsibility report for the Machining Department.

b. Prepare a revised responsibility report for the Machining Department that reduces or eliminates the weaknesses indicated in part a.

c. Deviations in excess of 5 percent of budget are considered material and wor¬ thy of investigation. Should any of the variances of the Machining Depart¬ ment be investigated? Regardless of materiality, is there any area that the vice president of operations might wish to discuss with the manager of the Machining Department?
(CMA adapted)

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MACHINING DEPARTMENT-RESPONSIBILITY REPORT FOR THE MONTH ENDED OCTOBER 31, 1997 ACTUAL BUDGET Volume in units 3,000 3,185 VARIANCE 185F Variable manufacturing costs: Direct material $24,000 $ 24,843 $ 843U Direct labor 27,750 29,302 Variable factory overhead 33,300 35,035 Total $85,050 $ 89,180 1,552U 1,735U $4,130U Fixed manufacturing costs: Indirect labor $ 3,300 $ 3,334 $ 34U Depreciation 1,500 1,500 0 Tax Insurance Other 300 300 0 240 240 0 930 1,027 97U Total $ 6,270 $ 6,401 $ 131U Corporate costs: Research and development $ 2,400 $ 3,728 $1,328U Selling and administration Total Total costs 3,600 $ 6,000 $97,320 4,075 475U $ 7,803 $103,384 $1,803U $6,064U